Auto Loan securitisation

[This page is a series of focused write-ups on applications in securitisation. For other applications, see the Securitisation Applications section on the Securitisation home page.]

In a generic sense, auto loans include auto leases -this chapter includes auto lease securitisations also. 

Auto loans securitisation market:

Ever since the emergence of the ABS market, auto loans have formed an important segment. The interesting features of auto loan markets are high asset quality and ease in liquidation of delinquent receivables. The emergence of an alternative in form of asset-backed commercial paper has reduced the significance of auto loan securitisations, but the activity in this segment is still important.

Product structure

The quality of auto loans depends upon the quality of the underlying collateral, lending terms (loan to value ratio), and tenure. Recent years have seen tremendous competition in auto loan financing segment with concomitant deterioration in the quality of the loans – there is an increased proportion of used car loans versus new car loans, the loan to value ratio has worsened and the financings are for a longer period now.

Hence, increased importance is attached today to the quality of the originator.

Typical features:

The payment structure of auto loans normally ranges between 3 to 6 years which is ideal for direct pass throughs as well as collateralized bonds.

An important legal issue for auto loan securitisation is whether the assignment of receivables achieves a "true sale" recognised by law. Here the understanding of the legal features of the concerned market becomes important. See for details Chapter on Legal issues in our Primer.

Links:

A general useful site on auto financing: http://www.banklease.com/